Cataclysmic infrastructure collapse: Who pays?

A recent Minneapolis bridge collapse and New York steam pipe explosion, both of which collectively caused the deaths of at least six people and more than US$250 million in damages, has brought infrastructure liability to the fore, according to a report by KPMG.In its online publication, KPMG Insurance Insider, KPMG raises a number of insurance issues that surround the cataclysmic collapse of urban infrastructure. “[Failing infrastructure] is a public risk manager’s worst nightmare,” William Kostner, who serves as city risk manager for Lincoln, Nebraska, is quoted as saying in KPMGs report. “But it’s not something that has been at the top of everyone’s’ mind. It’s just coming more to the forefront that we have an aging system.”At issue is whether insurers are on the hook for the cataclysmic failure of a decaying urban infrastructure. KPMG Insurance Insider quotes Claire Wilkinson, the vice president for global issues at the Insurance Information Institute, on the issue of where liability falls in the event of a massive infrastructure failure. She notes that, in the United States, federal and local authorities that administer bridges and road can claim “sovereign immunity” to avoid liability. But she adds the common-law defense may no longer apply if the infrastructure was under repair, opening the public entities and contractors to charges of negligence..”A contractor employed by the state could cause damage where the state would be held liable,” KPMG quotes Wilkinson as saying. And even if a contractor has liability coverage, Wilkinson adds, in a world of multi-million construction projects, the limits would likely be quickly eclipsed. KPMG notes that in the event a state contractor exceeded liability limits, the pubic entity might be held responsible for project liability associated with the costs of reconstruction, casualty, property business interruption and/or workers compensation claims.”If the failure is large enough, it could easily touch on commercial liability, casualty excess and reinsurance,” before claimants tapped public coffers, Wilkinson told KPMG.For this reason, KPMG notes, there is a balance any public body needs to draw between choosing a contractors lowest bid and making sure the contractor has adequately factored insurance costs into the overall project costs.